These days, evidence of people downsizing is everywhere – in magazines, on television, and all over social media. Unless you live under a rock, you’ve probably seen it just about everywhere you look.
Even in the small town where I live, the Mini Cooper can occasionally be seen, likely due to the spike in gas prices we had not all that long ago. Smaller homes and tiny houses have become more popular as people learn to live with less stuff. Having less certainly frees up your time, but there are also some major financial benefits of downsizing your home. Here are 6 financial benefits of downsizing your home.
Since I already mentioned it, let’s talk briefly about the financial side of saving time. Having a smaller home means less time picking up, cleaning up, and maintaining your home. The extra time you save could be spent working a side hustle. This means extra income for you.
It makes sense that a smaller home equals a lower cost, which also equals a lower mortgage. At the same time, if you go ahead and make a larger payment each month, as you would have on a larger home, you could pay off your smaller home in a significantly shorter period of time. This will save you interest and free up your cashflow much sooner for other things.
Less square footage means a smaller area to heat and cool, as well as a smaller area to clean, which will provide savings in water and electricity. A smaller number of windows and doors mean less energy lost from heat or air conditioning escaping through cracks, further adding to your savings. It will also be less expensive to add more insulation or new doors and windows to you home to make it more energy efficient if you live in a smaller home.
Because there’s not a single home of any size that won’t begin to experience some wear after a few years, you will surely need to do some maintenance in the future even if the smaller home you are considering is brand new. Once again, the smaller size equals smaller dollars spent for new siding, guttering, roofing, or whatever else you will need in the future to keep your home in top shape. In fact, by having a smaller home you might be able to afford some higher end features such as granite counter tops and wood floors. That is one reason that I fell in love with the idea of having a tiny home, it would be inexpensive to go all out with fancy features and finishes.
Having a smaller house also means you have a smaller tax liability each year on your home. This is just one more way to keep the cash in your own pocket. Of course, the area of the country you live in can affect your property taxes too, but a smaller home will generally have a lower property tax bill relative to larger homes in the same area.
At least some of the extra money you save from living in a little less space could be invested in your future. This is also known as opportunity cost. The opportunity cost of buying a larger home means more of you cash is tied up in the purchase. But with a smaller, less expensive home, you can put more into your 401K plan, or invest in some mutual funds. If that doesn’t sound appealing maybe you can invest in real estate. There are several choices you could make and the risks are different with each, but you might end up with a nice nest egg for your retirement by downsizing your home.
Living in a smaller space is not for everyone, so don’t rush into a decision to upend your life and suddenly put your current house on the market and downsize your home. You should weigh the benefits and drawbacks carefully, and if it still seems like the best choice for you, then make your move. This is something I’ve been considering. I’m just watching the market closely to find a smaller home that more suitable for a single person.
Have you considered downsizing your home? What is your favorite reason for downsizing your home?